IRS Form 1040 Schedule 3 (2018): Nonrefundable Credits

What Form 1040 Schedule 3 Is For

IRS Form 1040 Schedule 3 (2018) helps taxpayers report nonrefundable credits that can reduce their federal income tax liability. These credits cannot create a refund on their own, but they can bring your tax bill down to zero when you qualify. The schedule covers several tax credits, including the foreign tax credit, dependent care credit, education credits, and retirement savings credit.

Schedule 3 also includes residential energy credits and other credit listings for the 2018 tax year. Once you complete the schedule, the total credit amount is transferred to Form 1040, line 12, which reduces the tax you owe. Visit the IRS Form Help Center for explanations of supporting forms commonly required when claiming nonrefundable tax credits.

When You’d Use Form 1040 Schedule 3

You use IRS Form 1040 Schedule 3 (2018) when your tax return includes nonrefundable credits that help lower your tax liability but do not create a refund on their own. This schedule is required anytime you need to report credits that are not listed directly on the main Form 1040.

Use Schedule 3 when:

• Original 2018 Tax Return: You qualify for credits such as the foreign tax credit, education credits, or the dependent care credit, and must list them separately.
  
  
• Late Filing: You are submitting a late income tax return and need to claim credits that reduce your federal tax.
  
  
• Amended Return (Form 1040-X): You are correcting an earlier filing to claim a missed credit or fix an error involving foreign taxes, education costs, or dependent care expenses.
  
  
• New or Updated Tax Documents: You received new statements—such as a revised 1099 showing foreign tax, a corrected tuition form, or proof of dependent care expenses—that require updated reporting and additional credits.

If missing returns prevent you from claiming credits correctly, learn how to resolve gaps using our unfiled federal returns guidance.

Key Rules or Details for 2018

Understanding IRS Form 1040 Schedule 3 (2018) helps you report nonrefundable credits that reduce your tax liability, unlike refundable credits, which can increase your refund even when no tax is owed.

Key points for 2018 include:

• Refundable vs. Nonrefundable Credits: Nonrefundable credits decrease your tax bill, but refundable credits do not. Refundable credits can provide money back even if you owe nothing.
  
  
• Separate Forms Required: Many credits need their own forms, including:
  
  
  
  • Form 1116 for the foreign tax credit
    
    
  • Form 2441 for the dependent care credit
    
    
  • Form 8863 for education credits
    
    
  • Form 5695 for energy credits
    
    
  • Form 8880 for the retirement savings credit
    
    
• Income Phase-Out Limits: Some credits shrink or disappear if your income is above certain levels. These limits apply to credits like educational and retirement savings.
  
  
• Eligibility Rules:
  
  

• Dependent care expenses must be connected to work and paid for a qualifying individual. The IRS requires documentation showing both the expense and the caregiver meet eligibility standards.
  
  
• Education expenses must be for eligible schools and qualify as approved costs. These expenses generally include tuition and specific required fees that meet IRS criteria.
  
  
• Foreign taxes must be paid or accrued to a recognized foreign country. This ensures the taxes qualify for the foreign tax credit or deduction.
  
  
• Energy improvements must meet the IRS requirements for 2018. Only approved upgrades qualify, and supporting records should be kept with your return.
  
  

• Recordkeeping Requirements: Keep receipts, statements, and other documents for at least three years. The IRS may request proof when reviewing your tax return.

Step-by-Step (High Level)

This overview guides you through completing IRS Form 1040 Schedule 3 (2018) to claim the correct tax credits and reduce your tax liability.

Step 1: Review Eligibility

Review each nonrefundable credit listed on Schedule 3. Decide which credits, such as the foreign tax credit, education credits, or dependent care credit, you may qualify for.

Step 2: Complete Supporting Forms

Fill out the required forms first, like Form 1116, Form 2441, Form 8863, Form 5695, or Form 8880. These forms calculate the credit amounts.

Step 3: Enter Amounts on Schedule 3 (Lines 48–54)

Transfer the credit amounts from the supporting forms to the matching lines on Schedule 3.

Step 4: Add Total on Line 55

Add lines 48 through 54 on Schedule 3. Enter the total on line 55.

Step 5: Transfer the Total to Form 1040

Move the total from Schedule 3, line 55, to Form 1040, line 12. This amount reduces your federal income tax.

Step 6: Attach Required Forms When Filing

Attach Schedule 3 and all required credit forms behind your primary income tax return, or ensure your e-file includes them electronically.

Common Mistakes and How to Avoid Them

Understanding the most frequent issues can help you avoid problems and claim the credits you qualify for.

• Missing supporting forms: Ensure that you have all the necessary forms, including Forms 1116, 2441, and 8863, prepared before filing.
  
  
• Using the simplified foreign tax method incorrectly: Carefully review the five IRS requirements to ensure you qualify before deciding to skip Form 1116.
  
  
• Double-claiming education benefits: Compare both options and choose the one that yields the better result, but claim only one.
  
  
• Ignoring income limits: Refer to the eligibility tables in the instructions to confirm your eligibility to claim each credit.
  
  
• Missing Provider or School Details: Collect all required details before completing your return.
  
  
• Incorrect line entries or unchecked boxes: Review Schedule 3 line by line to ensure every required box is checked.
  
  
• Math errors when totaling credits: Recheck your calculations or use tax software that automatically totals the credits.

Learn how IRS penalties are assessed and the steps taxpayers can take to address incorrect filings or unpaid balances.

What Happens After You File

After you file IRS Form 1040 Schedule 3 (2018), the IRS reviews your tax return to confirm the various tax credits you claimed. This includes items linked to estimated tax payments, the net premium tax credit, or additional credits and payments. The IRS checks your entries against forms that report tax payments, wage details, and certain foreign taxes to ensure everything matches.

If something is missing or unclear, the IRS may send a notice requesting additional information. They may also correct simple errors, such as issues related to excess Social Security tax or incorrect credit amounts. You can track your refund on the IRS page for refund status. Taxpayers with the same income or different filing situations follow the same process. However, amended returns or filings submitted after an extension may take longer to process.

FAQs

What’s the difference between the foreign tax credit and other nonrefundable credits?

The foreign tax credit reduces your tax liability for foreign taxes, but it cannot create a refund.

Do I need Schedule 3 if I only claim one tax credit?

You need Schedule 3 when the tax credit you claim—such as education credits or the dependent care credit—is not included on Form 1040.

Can I amend my return if I missed additional credits and payments?

You may file Form 1040-X to claim additional credits and payments that were not included originally.

Are education credits refundable credits?

Most education credits are not refundable credits and only lower the tax you owe.

When do I use Schedule 3 to report foreign taxes?

You use Schedule 3 when claiming the foreign tax credit for paid or accrued foreign taxes.